Rating Agencies in the Face of Regulation

This paper develops a theoretical framework to shed light on variation in credit rating standards over time and across asset classes. Ratings issued by credit rating agencies serve a dual role: they provide information to investors and are used to regulate institutional investors. We show that introducing rating-contingent regulation that favors highly rated securities may increase or decrease rating informativeness, but unambiguously increases the volume of highly rated securities. If the regulatory advantage of highly rated securities is sufficiently large, delegated information acquisition is unsustainable, since the rating agency prefers to facilitate regulatory arbitrage by inflating ratings. Our model relates rating informativeness to the quality distribution of issuers, the complexity of assets, and issuers\u27 outside options. We reconcile our results with the existing empirical literature and highlight new, testable implications, such as repercussions of the Dodd-Frank Act

Intertemporal Information Acquisition and Investment Dynamics

This paper studies intertemporal information acquisition by agents that are rational Bayesian learners and that dynamically optimize over consumption, investment in capital, and investment in information. The model predicts that investors acquire more information in times when future capital productivity is expected to be high, the cost of capital is low, new technologies are expected to have a persistent impact on productivity, and the scalability of investments is expected to be high. My results shed light on the economic mechanisms behind various dynamic aspects of information production by the financial sector, such as the sources of variation in returns on information acquisition for investment banks or private equity funds

Learning, Active Investors, and the Returns of Financially Distressed Firms

I develop an analytically tractable dynamic asset pricing model to study expected returns of financially distressed firms in the presence of learning about firm fundamentals and endogenous information acquisition by active investors. The model reveals that learning and information acquisition critically affect lowfrequency risk exposures close to default and can, counter to standard models, rationalize low and even negative expected return premia for firms with high default risk. Similar to Schumpeter’s (1934) argument that recessions have a positive, cleansing effect on the economy, the model reveals that equity holders naturally benefit from an increased speed of learning about truly insolvent firms in downturns, which positively affects the value of their default option in these times. Equity holders’ option value is similarly enhanced by the ability to partially freeride on active investors’ information acquisition. Learning thus dynamically affects distressed firms’ exposures to business-cycle frequency risks and can rationalize striking, momentum-type dynamics in risk premia

Asymmetric Information and Intermediation Chains

We propose a parsimonious model of bilateral trade under asymmetric information to shed light on the prevalence of intermediation chains that stand between buyers and sellers in many decentralized markets. Our model features a classic problem in economics where an agent uses his market power to inefficiently screen a privately informed counterparty. Paradoxically, involving moderately informed intermediaries also endowed with market power can improve trade efficiency. Long intermediation chains in which each trader\u27s information set is similar to those of his direct counterparties limit traders\u27 incentives to post prices that reduce trade volume and jeopardize gains to trade

Soil diversity under semi-natural grassland within the forest-steppe zone - examples from Transylvania (Romania)

In the Transylvanian Basin, extensively managed hay meadows with a particular biodiversity could survive until today. Under a temperate-continental climate of the forest steppe and within the colline zone, they are situated on north-facing slopes with an erratic ondulated relief, dominated by small slumpings. A mosaic of different site conditions is illustrated by a patchy distribution of wet meadow, dry- and semi-dry grassland sites. However, little is still known about the edaphic properties of these ecosystems. Precise pedological studies, even less entire soil sequences, are nonexistent. Therefore, the presented findings are a first approach to outline the distribution of different soil types under such semi-natural grasslands. As preliminary results, they are embedded into a pedological-morphodynamic study about the regional grassland-dependent landscape development. Two northern exposed hay meadows were investigated through the application of catenas. Soil description was done according to 'Bodenkundliche Kartieranleitung' (KA 5), based on data gathered from cores, test pits, and laboratory analysis. Several different soil types were detected: On the upper slope and on exposed positions, driest conditions and lowest clay contents led to the formation of subtypes of 'Pararendzina', 'Tschernosem', and 'Kalktschernosem'. Along more inclined parts of the slope, 'Tschernosem' and 'Pelosol' occur with accented processes of soil creep. Within colluvial infillings of punctually distributed small depressions, highest clay- and SOM-amounts were recorded. Especially in 'Pelosol'-subtypes occuring there, intense seasonal waterlogging and desiccation dominates soil formation. Along the investigated slopes, the generally deep, clay- and organic matter-rich soil cover reveals a small-scale mosaic of different soil types, reflecting the variety of site conditions. The specific soil features further let assume a long lasting constancy of semi-natural grassland on these potentially forested sites within the forest steppe

Cooperation, Norms, and Revolutions: A Unified Game-Theoretical Approach

Cooperation is of utmost importance to society as a whole, but is often challenged by individual self-interests. While game theory has studied this problem extensively, there is little work on interactions within and across groups with different preferences or beliefs. Yet, people from different social or cultural backgrounds often meet and interact. This can yield conflict, since behavior that is considered cooperative by one population might be perceived as non-cooperative from the viewpoint of another. To understand the dynamics and outcome of the competitive interactions within and between groups, we study game-dynamical replicator equations for multiple populations with incompatible interests and different power (be this due to different population sizes, material resources, social capital, or other factors). These equations allow us to address various important questions: For example, can cooperation in the prisoner's dilemma be promoted, when two interacting groups have different preferences? Under what conditions can costly punishment, or other mechanisms, foster the evolution of norms? When does cooperation fail, leading to antagonistic behavior, conflict, or even revolutions? And what incentives are needed to reach peaceful agreements between groups with conflicting interests? Our detailed quantitative analysis reveals a large variety of interesting results, which are relevant for society, law and economics, and have implications for the evolution of language and culture as well

Estimating Actual Evapotranspiration over Croplands Using Vegetation Index Methods and Dynamic Harvested Area

Advances in estimating actual evapotranspiration (ETa) with remote sensing (RS) have contributed to improving hydrological, agricultural, and climatological studies. In this study, we evaluated the applicability of Vegetation-Index (VI) -based ETa (ET-VI) for mapping and monitoring drought in arid agricultural systems in a region where a lack of ground data hampers ETa work. To map ETa (2000–2019), ET-VIs were translated and localized using Landsat-derived 3- and 2-band Enhanced Vegetation Indices (EVI and EVI2) over croplands in the Zayandehrud River Basin (ZRB) in Iran. Since EVI and EVI2 were optimized for the MODerate Imaging Spectroradiometer (MODIS), using these VIs with Landsat sensors required a cross-sensor transformation to allow for their use in the ET-VI algorithm. The before- and after- impact of applying these empirical translation methods on the ETa estimations was examined. We also compared the effect of cropping patterns’ interannual change on the annual ETa rate using the maximum Normalized Difference Vegetation Index (NDVI) time series. The performance of the different ET-VIs products was then evaluated. Our results show that ETa estimates agreed well with each other and are all suitable to monitor ETa in the ZRB. Compared to ETc values, ETa estimations from MODIS-based continuity corrected Landsat-EVI (EVI2) (EVIMccL and EVI2MccL) performed slightly better across croplands than those of Landsat-EVI (EVI2) without transformation. The analysis of harvested areas and ET-VIs anomalies revealed a decline in the extent of cultivated areas and a loss of corresponding water resources downstream. The findings show the importance of continuity correction across sensors when using empirical algorithms designed and optimized for specific sensors. Our comprehensive ETa estimation of agricultural water use at 30 m spatial resolution provides an inexpensive monitoring tool for cropping areas and their water consumption.</jats:p

'We looked after people better when we were informal' : the 'quasi-formalisation' of Montevideo's waste-pickers

This article was written thanks to funding from the Economic and Social Research Council (Grant Code: ES/S011048/1).Drawing on participatory research, this article explores the state formalisation of Uruguayan clasificadores (waste‐pickers). It goes beyond the informal/formal binary, instead proposing the concepts of ‘para‐formality’ to describe economic activity that exists in parallel to regulated and taxed spheres, and ‘quasi‐formality’ to describe processes of formalisation that are supported by underlying informal practices. When unregulated, clasificadores enjoyed parallel services in health, finance and social security, implying that benefits of ‘formalisation’ must be explored ethnographically rather than assumed. The persistence of ‘quasi‐formal’ activity within formalised recycling plants complicates simple narratives of informal to formal transitions and suggests that the concept can be useful for the study of labour policies in Latin America and beyondPublisher PDFPeer reviewe